Revenue growth didn’t show signs of pickup (muted volume growth, decline in sales headcount q-o-q for the second consecutive quarter), while margin beat was primarily cost-led. The company reported 1H revenue growth of 7.8% y-o-y, compared to our FY18e estimate of 10.7%. We arrive at our scenario values for the search business using DCF methodology. Our key DCF assumptions include a cost of equity of 12.8% and a terminal growth rate of 5%. We then apply a probability-weighted average of our risk-reward scenario values – bull (10%), base (50%), and bear case (40%) – to arrive at our price target of Rs 360.

Bull case (Rs 650): We assign a lower probability of 10% because we see limited visibility on how the company will successfully transition its business from search to search and transact. Bear case (Rs 250): We assign a higher 40% probability to our bear case. The company has taken several initiatives that are works in progress (JD Omni, Advertising and user engagement for Search Plus). Despite these, improvement in growth trajectory is taking longer than we initially expected. Monetisation of this business has been consistently pushed out, so we have not assumed any value for it in our base case scenario – only in our bull- case scenario. In the bull case, we derive a value of Rs 200/share for Search Plus by applying an EV/S multiple of 10x to F2019e sales, discounted back 1.5 years at our 12.8% cost of equity assumption. Since its IPO in 2013, Just Dial’s average one-year forward EV/S multiple has been 11x.

Therefore, we view 10x as appropriate for Search Plus in a bull case. Our bear-case scenario (for the full company) builds in continued slowdown in the Search business due to slower conversion of listings into paid campaigns and lower realizations that also lead to weaker margins. Management had earlier highlighted that without transaction platform of Search Plus, the core Search business would cease to exist.